Keynesian Economics as The Anti-Economics

While reading an article from Mish on housing, two of his passages struck me:

You can temporarily jump-start nearly anything if you throw enough money at it, and that is exactly what Keynesian clown fools want to do. Unfortunately, no amount of taxpayer money is too great for any cause any fool believes in.

The best way to "jump-start" housing is to let the market find a bottom. Once prices get sufficiently low, investors and buyers will step in. Meanwhile, any steps that artificially prop up prices and postpone foreclosures at taxpayer expense will delay the bottom in housing, delay household formation, and delay a jobs recovery as well.

In a way these two quotes capture much of what has been wrong with the economy for the last eighty years.

The first quote captures the central planning and statist tendencies of Keynesian economics, at least as it is practiced by the political class. Keynesian economics, if it ever made any sense, is now a tool for political chicanery and vote-buying.

The second quote is in direct opposition to the first. It represents market direction rather than central planning. Prices, unhindered, provide signals to market participants whose behavior adjusts accordingly. Unhindered market prices are the basis for Adam Smith's "Invisible Hand."

All intervention is a form of Central Planning. A macroeconomic intervention attempts to prevent relative price changes and their accompanying corrections from occurring. In the simplest terms,macroeconomic actions are taken to prevent markets from adjusting. Macroeconomics is an attempt to deny the normal functioning of markets. As such, Keynesian economics is Anti-Economics. Its application is always an attempt to constrain the forces of microeconomics. It is an ill-fated denial of the laws of economics.

When price adjustments are stymied, balanced recovery cannot take place. Intervention may hide a problem but it cannot solve it. The underlying distortions eventually resurface and require bigger and more costly interventions to hide them again. This process repeats until eventually the distortions become so great that further meddling, no matter how large, cannot suppress the problem. Markets then become dysfunctional, even non-functioning.

The two quotes frame the issue. Something considered unpalatable by politicians is decided to be "solved" by intervening. Politically, the problem is "solved" by making it disappear; economically it has been made worse in that it will eventually reappear as an even bigger problem.

Continued "solutions" eventually make the adjustments so large and painful that the political class resorts to the behavior described in Mish's first quote. Eventually they run out of money and/or markets collapse.

Interestingly, there never was an economic problem; nor can there be in a freely functioning market. A political judgment decided that outcomes other than those determined by consumers would be preferable. Intervention is an attempt to deter free people from the results they desire. Intervention may work for a while but eventually economic laws overpower political desire at great cost to everyone.

Keynesian economics is a political tool, not an economic one. It pushes off small economic problems temporarily only to have them come back later as bigger ones. That requires more political intervention and the cycle repeats again and again in a loop that runs ad collapsium. Don't go to your Latin dictionary to look up this contrived phrase. It is an invented term.

The point is that a politically motivated loop is entered whereby subsequent interventions to correct the abuses of prior interventions are seen as mandatory. Eventually the affected market becomes dysfunctional. That is what has happened in the housing market. That is what we are heading for in the total economy as a result of continuing and now massive interventions.

The government has put us in a loop whereby we are ratcheting to ruin. Politically they dare not stop their interventions because the economy will go into shock and into another Great Depression. Yet that is where we end up, regardless. The only difference is in the timing and the fact that we will be much poorer when the inevitability finally arrives.

While reading an article from Mish on housing, two of his passages struck me:

You can temporarily jump-start nearly anything if you throw enough money at it, and that is exactly what Keynesian clown fools want to do. Unfortunately, no amount of taxpayer money is too great for any cause any fool believes in.

The best way to "jump-start" housing is to let the market find a bottom. Once prices get sufficiently low, investors and buyers will step in. Meanwhile, any steps that artificially prop up prices and postpone foreclosures at taxpayer expense will delay the bottom in housing, delay household formation, and delay a jobs recovery as well.

In a way these two quotes capture much of what has been wrong with the economy for the last eighty years.

The first quote captures the central planning and statist tendencies of Keynesian economics, at least as it is practiced by the political class. Keynesian economics, if it ever made any sense, is now a tool for political chicanery and vote-buying.

The second quote is in direct opposition to the first. It represents market direction rather than central planning. Prices, unhindered, provide signals to market participants whose behavior adjusts accordingly. Unhindered market prices are the basis for Adam Smith's "Invisible Hand."

All intervention is a form of Central Planning. A macroeconomic intervention attempts to prevent relative price changes and their accompanying corrections from occurring. In the simplest terms,macroeconomic actions are taken to prevent markets from adjusting. Macroeconomics is an attempt to deny the normal functioning of markets. As such, Keynesian economics is Anti-Economics. Its application is always an attempt to constrain the forces of microeconomics. It is an ill-fated denial of the laws of economics.

When price adjustments are stymied, balanced recovery cannot take place. Intervention may hide a problem but it cannot solve it. The underlying distortions eventually resurface and require bigger and more costly interventions to hide them again. This process repeats until eventually the distortions become so great that further meddling, no matter how large, cannot suppress the problem. Markets then become dysfunctional, even non-functioning.

The two quotes frame the issue. Something considered unpalatable by politicians is decided to be "solved" by intervening. Politically, the problem is "solved" by making it disappear; economically it has been made worse in that it will eventually reappear as an even bigger problem.

Continued "solutions" eventually make the adjustments so large and painful that the political class resorts to the behavior described in Mish's first quote. Eventually they run out of money and/or markets collapse.

Interestingly, there never was an economic problem; nor can there be in a freely functioning market. A political judgment decided that outcomes other than those determined by consumers would be preferable. Intervention is an attempt to deter free people from the results they desire. Intervention may work for a while but eventually economic laws overpower political desire at great cost to everyone.

Keynesian economics is a political tool, not an economic one. It pushes off small economic problems temporarily only to have them come back later as bigger ones. That requires more political intervention and the cycle repeats again and again in a loop that runs ad collapsium. Don't go to your Latin dictionary to look up this contrived phrase. It is an invented term.

The point is that a politically motivated loop is entered whereby subsequent interventions to correct the abuses of prior interventions are seen as mandatory. Eventually the affected market becomes dysfunctional. That is what has happened in the housing market. That is what we are heading for in the total economy as a result of continuing and now massive interventions.

The government has put us in a loop whereby we are ratcheting to ruin. Politically they dare not stop their interventions because the economy will go into shock and into another Great Depression. Yet that is where we end up, regardless. The only difference is in the timing and the fact that we will be much poorer when the inevitability finally arrives.